The first ICSID case against Guinea is dismissed for lack of jurisdiction

In a decision dated December 21, 2015, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) ruled that it lacked jurisdiction to hear a case brought by Société civile immobilière de Gaëta (Gaëta) against Guinea under the Guinean Investment Code.

Having built the Cité des Chemins de Fer (the Cité) in Conakry, Gaëta alleged expropriation of its investment and a violation of fair and equitable treatment (FET) by Guinea. Gaëta sought compensation of around US$90 million. The tribunal, however, concluded that Gaëta had not succeeded in proving that it was a foreign investor within the meaning of the Investment Code. Moreover, Gaëta did not establish that it had made a protected investment within the meaning of the Investment Code and article 25 of the ICSID Convention.

Background

Gaëta is a company registered with the French Commercial Register. It is managed by its managing director, Mr. Guido Santullo. Gaëta made its investment in Guinea in 1997 through a construction lease agreement. The project comprised the construction of several buildings for commercial, administrative and banking purposes on the site of the Cité. The lease, planned to have a life of 60 years, also provided Gaëta a right to rent the buildings. The contract also provided significant exemptions on customs duties, taxes and fees as well as on state fees.

Following conclusion of the contract, Gaëta had turned to another company, Séricom Guinée, for the planning, development and construction work. Mr. Guido Santullo is the majority shareholder of this company. After the completion of work in 1999, the buildings were leased to third parties. A second company controlled by Mr. Guido Santullo, SCI Cité des Chemins de Fer, provided security and maintenance services for the premises in the Cité and billed the tenants for its services.

In December 2008, Guinea entered an unstable period of government transition following the death of President Lansana Conté. The incoming new administration instructed an audit company to clarify the legal status of the Cité lands and the tax regime applicable to Gaëta. The audit firm concluded, first, that Gaëta had no legal existence in Guinea, and second, that the company had earned income in Guinea since 1999 and that this income had not been subjected to taxation.

Consequently, Gaëta was subjected to a tax adjustment for tax evasion in the amount of around US$7.8 million. From 2009 until early 2012, Gaëta contested being responsible for tax fraud, through the tax exemptions that the Guinean Government had previously granted the company. In 2012, however, the new President Alpha Condé decided that the buildings in the Cité would be requisitioned for one year.

Guinea contests Gaëta’s qualification as a foreign investor

The tribunal first clarified that only a foreign investor may invoke the international arbitration mechanism under the Investment Code and the ICSID Convention. Since Gaëta asserted that it was a French company, the tribunal considered its nationality under French law.

Contrary to the arguments of the claimant, the tribunal emphasized that it was empowered to engage in a thorough review of applicable national law. According to the tribunal, such an examination is only made as a preliminary step and does not involve checking the validity of a decision made by national authorities (para. 135).

In its analysis, the tribunal considered that Gaëta, headquartered in France, benefited from the presumption of French nationality. Under French law, however, this presumption may be rebutted if it is established that the company has its real headquarters in a foreign state.

To determine the actual headquarters, the tribunal took account of the place of management and administration of the company and the place of its business. Taking into account the documents submitted, the tribunal judged that it was clear that the management of the plaintiff’s Guinean business took place in Guinea between 1997 and 2009. Thus, all correspondence between Guinea and the plaintiff was always addressed to Mr. Guido Santullo in Guinea. Similarly, management of rents and Gaëta’s accounting had been carried out not in France but from offices the plaintiff held in Conakry. Turning lastly to commercial activity, the tribunal found a significant difference between the annual turnover generated in France, amounting to approximately US$5,000, and that generated in Guinea, which amounted to around US$3 million.

Taking these factors into account, the tribunal concluded that the claimant was not a French company. The tribunal deduced from this that it had no jurisdiction ratione personae over the case at hand.

The existence of a protected investment

Despite its declaration of lack of jurisdiction on this case and contrary to the principle of judicial economy, the tribunal decided to also examine whether the conditions of its ratione materiae jurisdiction were met in this case, “to avoid any uncertainty and for exhaustiveness” (para. 183).

The tribunal discussed at length the definition of investment under international law and particularly under article 25 of the ICSID Convention. A thorough review of the Salini criteria was at the heart of its analysis. The criteria of this case are: (i) a certain period of investment, (ii) the taking of a risk by the investor, (iii) a substantial contribution and (iv) the contribution to the development of the host state (Salini Costruttori v. Kingdom of Morocco).

According to the tribunal, these criteria should not be rigidly and systematically applied (para. 208) but should be examined primarily in light of the specific circumstances of the case at hand, taking particular account of the different instruments used by the parties to express their consent to ICSID jurisdiction (Biwater Gauff v. Tanzania).

The Investment Code of Guinea does not contain an express definition of investment, merely stating in article 2.1 that “everyone is free to undertake in the territory of the Republic of Guinea a commercial, industrial, mining, agricultural or service activity in compliance with the laws and regulations of the Republic.” According to the tribunal, Guinean Law only provides indicators. For this reason, it examined the construction lease agreement in terms of the criteria established by the Salini jurisdiction (para. 213).

Nevertheless, in its analysis of the elements, the tribunal primarily focused on the review of the criterion of substantial contribution (criterion (iii) above). The tribunal noted that an investor must have incurred expenses in order to pursue an economic goal. These expenses must be substantial, without there being a minimum requirement in terms of capital invested. Next, the tribunal considered that even if the origin of the funds is irrelevant, it is necessary that the claimant is indeed the maker of the expenditure made in connection with the investment (para. 231).

In this case, the tribunal concluded that the construction lease agreement constituted an investment. On the other hand, the tribunal found that Gaëta was not the real maker of this investment. After reviewing the various balance sheets of the claimant and those of other companies controlled by Mr. Guido Santullo, Séricom Guinée and SCI Cité des Chemins de Fer, the tribunal held that it was impossible to determine which of the companies had actually financed the construction works of the Cité, on the basis of incomplete and contradictory information. Given the lack of evidence, the tribunal concluded that Gaëta did not make the investment and could not benefit from the protection afforded by international law.

Costs

The tribunal considered that, because of the lack of jurisdiction and the fact that the claimant had been totally unsuccessful, it should in principle bear all the costs of the proceedings. Nonetheless, given that Guinea had burdened the proceedings and breached certain of its obligations, the tribunal decided that it was fair to have Gaëta bear only 80 per cent of the costs of the proceedings. According to the tribunal, the most flagrant violation by Guinea was its refusal to pay its advance share to ICSID as per the rules of procedure. The tribunal found that this obligation is systematic and independent of the chances of success (para. 307). Moreover, Guinea had also burdened the proceedings by the slowness with which it had provided documents relevant to the tribunal’s analysis. For these same reasons, the tribunal ordered Guinea to bear 20 per cent of its own costs and legal expenses.